Knowing me, knowing you

Despite reservations from some, India will benefit from the liberalisation of its legal market. By Alex Pease

We have all read newspaper reports that speak confidently of political moves to achieve liberalisation of the Indian legal market before the country’s general election in two years’ time. Whether these predictions turn out to be true or not, it is worth looking at what the Indian legal market might look like after liberalisation. As Edward Luce writes in his overview of modern day India is his book In Spite of the Gods: The Rise of Modern India: “Nothing in India is as good or as bad as you think.”

A recent trip to India by the Joint Economic and Trade Commission UK team to discuss liberalisation with the legal industry’s Indian counterparts displayed the warmth of the reception given by so many Indian lawyers. Over and over again, Indian lawyers have said that there were two legacies of the British Raj that they value – the English language and the common law.

There are almost a million lawyers in India. However, most of them are engaged in court advocacy. It is often extremely tough to make ends meet with this sort of work and so the thought of foreign lawyers arriving was initially viewed with suspicion. However, once it is explained that English lawyers did not wish to practise in the Indian courts, the reaction of the regional Indian bar councils becomes quite positive to foreign firms.

Naturally, there are law firms in India that will be affected by the arrival of foreign firms. Some of the commercial firms may fear that they will not be able to compete with international firms, with their vast resources of both manpower and cash. This is understandable. However, it is useful to compare the experience in other countries that have liberalised to see whether they really need to be concerned.

Japan precedent
For example, many of the concerns expressed by Indian advocates now are the same as the objections raised by Japanese bengoshi in the 1990s. However, now the Japanese market is completely liberalised and it may provide a window on how the Indian market will look after liberalisation. Foreign firms can now practise Japanese law in Japan in addition to the laws of their home jurisdictions. They can have Japanese bengoshi as partners and employees.

Since the process of liberalisation began, the Japanese legal market has consolidated. Some Japanese lawyers have, of course, joined foreign firms, but there has also been a large number of mergers between the local firms creating local partnerships that are much bigger than their foreign competitors’ Japanese offices. Why should the existing client of a local firm, which is happy with the service it is getting, go to the small office of a foreign firm when its existing Indian firm can still give it the same excellent service as in the past? Therefore the real competition in India will likely be (as in Japan now) between consolidated and strong local firms and the foreign firms’ smaller Indian outposts; which is not quite so scary.

An additional development in the case of the Indian market will be the establishment of overseas branches of merged Indian firms serving the worldwide Indian diaspora. There are already nine Indian firms established in the UK.

Knowledge sharing
A further benefit of liberalisation that comes with increased size of the local firms is the adoption of international models of sharing equity, investing in training and know-how, and in management of HR. The comparison of the approach taken by the international firms in this area will encourage change in the local firms to the benefit of the entire local profession.

Far from being a threat to the survival of Indian commercial firms, indeed the real danger may be the other way around. As foreign firms come into India they will give access for the India market to all the know-how and precedents that those firms have built up in transactions all over the world. This know-how is only available in India at the moment with respect to transactions that have actually been done in India.

Once the market is liberalised to let foreign firms in, it will be like attaching a pipeline of intellectual capital and know-how into the market. The information flow will be huge. International firms should encourage this development through investment in local law schools as a gesture of goodwill in advance of liberalisation.

A similar situation occurred in London in the 1980s. With the arrival in London of the US investment banks through the UK’s own liberalisation exercise (known as the ‘big bang’) and the increase of the eurodollar market came US investment bank documentary practices. English law firms, which had hitherto been relatively small, adapted these documents, caught the wave of financial liberalisation and have never looked back.

Why would this not apply to India? Why would a large international client use a law firm in London or New York to do a global deal if the expertise, speed of service, know-how, business practices and precedents required for such a transaction are readily available for a tiny fraction of the cost in India?Naturally, the client will want face time with its lawyers and so it will depend to some extent upon where it is based. As the Asian legal age dawns, is it not at least possible that it will have its office nearer to Delhi than to the Docklands?

Alex Pease is chairman of the India group at Allen & Overy